Payback Method

Payback Method

Calculate the following time value of money problems using Excel or Word (show your work):

If you want to accumulate $500,000 in 20 years, how much do you need to deposit today that pays an interest rate of 15%?
What is the future value if you plan to invest $200,000 for 5 years and the interest rate is 5%?
What is the interest rate for an initial investment of $100,000 to grow to $300,000 in 10 years?
If your company purchases an annuity that will pay $50,000/year for 10 years at a 11% discount rate, what is the value of the annuity on the purchase date if the first annuity payment is made on the date of purchase?
What is the rate of return required to accumulate $400,000 if you invest $10,000 per year for 20 years. Assume all payments are made at the end of the period.
Calculate the project cash flow generated for Project A and Project B using the NPV method.

Which project would you select, and why?
Which project would you select under the payback method? The discount rate is 10% for both projects.
Use Microsoft® Excel® to prepare your answer.
Note that a similar problem is in the textbook in Section 5.1.
Sample Template for Project A and Project B:

table row blank cell bold italic I bold italic n bold italic i bold italic t bold italic i bold italic a bold italic l bold space bold italic I bold italic n bold italic v bold italic e bold italic s bold italic t bold italic m bold italic e bold italic n bold italic t end cell cell bold italic Y bold italic e bold italic a bold italic r bold space bold 1 end cell cell bold italic Y bold italic e bold italic a bold italic r bold space bold 2 end cell cell bold italic Y bold italic e bold italic a bold italic r bold space bold 3 end cell row cell bold italic P bold italic r bold italic o bold italic j bold italic e bold italic c bold italic t bold space bold italic A end cell cell left parenthesis 10 comma 000 right parenthesis end cell cell 5 comma 000 end cell cell 5 comma 000 end cell cell 5 comma 000 end cell row cell bold italic P bold italic r bold italic o bold italic j bold italic e bold italic c bold italic t bold space bold italic B end cell cell left parenthesis 55 comma 000 right parenthesis end cell cell 20 comma 000 end cell cell 20 comma 000 end cell cell 20 comma 000 end cell end table

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